Of Interest

Hat tip to Jeff for this article on Middlebury. There is only a single mention of Williams, so I’ll put my comments below the break.

Middlebury College has been living large. Aside from icons like Old Stone Row – three sober buildings that date back to the 19th century – and Mead Memorial Chapel, today’s sprawling campus would be largely unrecognizable to anyone who attended this rural Vermont college as recently as the 1990s.

During the past two decades Middlebury has undertaken a massive construction campaign, part of a push to secure its place among the nation’s top liberal arts schools. In the past 10 years alone the college has added a $47 million science center and a $40 million library, as well as a 2,100-seat hockey arena and apartment-style dorms featuring an environmentally friendly dining hall with rooftop vegetation.

And so on. Needless to say, Williams has been “living large” as well.

Middlebury’s building boom was underwritten by double-digit endowment returns, generous donations, and, like much of the past decade’s conspicuous consumption, record amounts of borrowing. The college’s debt ballooned from just $5 million in 1987 to $270 million today.

Just like Williams. Too bad we increased the College’s debt by over $200 million, thereby causing a $50 million loss (in addition to what would have happened without this borrowing).

But as Middlebury’s endowment, which weighed in at $885 million last June, shed $200 million in the last six months of the year, the costs of the growth spurt hit home.

I have heard rumors that Middlebury may be close to bankrupt. If endowment stood at $665 million on December 31 and they have $270 million in debt, then their net financial wealth is only $395 million. But how have they accounted for all their private equity and other levered investments? How aggressive was their investment allocation? I lack the energy to find out the details, but Middlebury is in huge trouble.

The cost issue is especially critical at schools like Middlebury that compete for top students but lack the ample endowments of a Harvard, Stanford, or Williams.

Excellent! Every time that Williams appears in the same sentence as Harvard or Stanford (and Amherst does not) is a win for us.

A male student from a top public high school in Vermont has strong grades, a slew of activities, and a glowing report from his interview with a Middlebury alum, as well as high marks from both staffers who’ve studied his file. He also plays the clarinet, so Clagett asks one of the admissions counselors to pull up the list, with skill ratings, of all the clarinetists in this year’s applicant pool. Meanwhile, he scans a sheet with the top 20 prospects provided by Middlebury’s orchestra director. This candidate hasn’t made the director’s wish list, but his admissions profile rates his musical skills a six out of seven, which is enough to put him over the top. “We try to take kids from our backyard,” Clagett explained to me earlier, and now he sounds pleased as he announces, “A clarinet player from Vermont? Very exciting!” On to the next file: It’s midmorning, and the committee still has about 70 files to discuss today.

…

[D]ecisions often hinge on so-called hooks or handles that grab counselors as they pore over hundreds of applications from varsity team captains and yearbook editors.

Applying from an underrepresented state can be a good hook, as can pursuing a rare hobby, like circus performing (this year, one applicant sent in a link to a YouTube clip of herself juggling and tumbling), or having a Middlebury graduate for a parent. So can a strong application from a student who would be the first in her family to attend college, or who comes from a high school where only 25% of his classmates are expected to earn a bachelor’s degree.

I question the accuracy of the rest of this article because the description of admissions is so naive. No discussion of either under-represented minorities or athletes. 95% of the non-academic admissions decisions are driven by those two factors. Does the Middlebury music department really rate the ability of “all the clarinetists in this year’s applicant pool?” I doubt it.

Of course, being a first-generation college hopeful or coming from an underperforming high school is also an indication that the student may need financial aid. But Clagett and his colleagues ignore that factor. “We won’t know until we mail out the letters what proportion of our students are needy,” says Clagett.

Middlebury won’t know the exact proportion, but it will still have a pretty good estimate. The next few years will provide the amusing spectacle of schools like Middlebury claiming to be need-blind but actually being very need-aware. How will outsiders know that something fishy is going on? Look for increases in prep-school graduates and students taken from the waitlist along with a drop in the number of students with Pell Grants and internationals.

That’s a luxury Middlebury may not always be able to afford. In the past 10 years its annual financial aid outlays have increased by 167%, to $33 million; last year, the average aid package came to $35,000. Most private colleges can’t sustain this policy and admit at least a part of their class with an eye to applicants’ finances, a so-called need-aware approach that should give wealthier kids even more of an edge this year. Middlebury does take need into account when admitting students from its waiting list, and recently adopted the practice in international admissions.

Unless Williams becomes much more aggressive in cutting costs elsewhere, this is our future too.

How long will Middlebury be able to remain need-blind on regular admissions? President Liebowitz has said that any change in its financial aid policy would come only as a last resort. “Different schools have different levels of sacrifice they’re willing to make in order to remain need-blind,” he says, “and the tolerance at our school is very high.”

Brave talk from such a poor school. I give Middlebury three years. Professors care more about their pay and their perks then they do about an abstract commitment to need-blind admissions. This will be all the more true when the faculty discover that teaching well-educated prep-school graduates with 1300 SATs (students that Middlebury used to reject in droves) is actually quite pleasant.

The article ends with a cockamamie plan for Middlebury to make a bunch of money taking on Rosetta Stone. Good luck with that!

23 Responses to “Middlebury Update”

One school wants to improve the academic quality of its entering class by making it larger. How can that make sense, given that it faces an applicant pool of finite size and quality? It does make sense if a large number of slots in each class are now committed to athletes or legacies or others whose academic qualifications are below those of the marginal applicants who are rejected. So rather than lowering quality by dipping deeper into their applicant pool, for this school expansion would improve student quality by creating more room to go around their core of academically less capable commitments.
To work in the long haul, of course, that rationale does require that some future discipline be imposed on athletic admits and legacies so the larger class won’t become the reason to increase the number of academically weak students admitted in the future. That could put the school back where it is now, but with more people and all the disadvantages of expansion.

Middlebury reminds me of Antioch with global expansion plans like the language schools and the “purchase” of the Monterrey Institute (actually an assumption of Monterrey’s debt, in what is essentially a for-profit language instruction model cloaked in non-profit clothing. If the full-fare demand for Middlebury’s incredibly expensive summer language schools and study abroad programs falters, they will be in deep trouble.

Middlebury has been “out of equilibrium” for this entire decade, even during several of the biggest endowment boom years, spending more than their targeted endowment rate.

BTW, Middlebury outsources their endowment management to Investure in Charlottesville, where their endowment is managed along with Smith’s, Barnard’s, Dickinson’s, and Trinity’s.

“Look for increases in prep-school graduates and students taken from the waitlist along with a drop in the number of students with Pell Grants and internationals.”

Not necessarily, at least as to the first two categories. The prep school graduates might well be beneficiaries of the very generous financial aid offered by some of the top prep and day schools. And, with the economic uncertainly (making enrollment harder to guess at), a targeted increase in students, and very little flexibility in adding new beds, Admission this year should have planned to go to the wait list and should have built in a considerable margin of safety so as not to end up with far more matriculating first-years than can be accommodated in the entry system.

A drop in Pell grant recipients could be indicative, but a drop in the number of internationals might not be (even with generous financial aid, families might decide a US undergraduate education was more than they could or wanted to afford — the economic crisis is, after all, global).

Before I comment more fully, I need clarification on this statement. Why would professors find this kind of student more pleasant to teach?

This will be all the more true when the faculty discover that teaching well-educated prep-school graduates with 1300 SATs (students that Middlebury used to reject in droves) is actually quite pleasant.

The Middlebury faculty will soon face a choice. It can either stop spending a lot of money on themselves (salary, benefits, raises, sabbaticals and so on) or it can stop spending so much money on financial aid. If it cuts $10 million, say, from financial aid, it will still be able to fill the class, but with many more “well-educated prep-school graduates with 1300 SATs” than it currently has. Those of the sorts of students who can come to Middlebury without financial aid and will want to do so. I predict that the Middlebury faculty will choose the less financial aid option rather than the lower salaries one.

DK: I predict you’re wrong. Not because faculty won’t act out of self-interest, but because a large part of their self-interest is the satisfaction they get from teaching great students. Looking at my profs, there’s nothing that makes them happier than when one of their students gets into a top grad school, writes a great thesis, or goes on 5,10,15 years later to do something great – those things validate their teaching/mentorship and convince them that what they do is worthwhile. All of those are less likely to happen if financial aid pressure forces admissions standards to be lowered.

Obviously there has to be a tradeoff at some point – profs won’t work for free to teach 1400-SAT students when they can get payed $100k to teach 1300-SAT students – but I think the “job satisfaction” factor is more important than you’re giving them credit for.

Middlebury has already announced a major cut in financial aid for internationals and a cost-savings change in the way the family contribution is calculated for domestic students. With no cushion, they couldn’t afford to wait; they had to scale back the growth in financial aid.

To give you an idea of how vulnerable Middlebury could be, they have been enrolling 1800 students at roughly $7000 each for their six week language schools at east and west coast locations each summer. I couldn’t find enrollment numbers, but they also operate a large number of study abroad sites at $20,000 cash money per semester. Plus the Breadloaf Summer schools (again at top dollar) in four locations. These are all things that cater to a wealthy, white clientele and could be negatively impacted by the slumping economy. Some of their customers might have to make a hard choice between the Hamptons and Breadloaf in Vermont this summer.

I take the liberty of passing on this observation from the father of twins of my acquaintance who is working his way along with them through the college acceptance process:

” I think colleges have a major brand management problem.

” It’s like in the wine aisle of the supermarket: there are a few wines you’ve heard of but most of the time you are looking at the pretty labels and the hand written notes under the bottles. (Carley says “goes well with business”, Robert says “new age with a hint of existentialism”)

“There are only so many brands you can keep in your head and in our nation-wide (world-wide?) media environment, everybody has the same set of 50 brands in their head, sending demand for these brands into the stratosphere and starving the thousand other quite drinkable products from any attention.

“Expanding is costly and scarcity has an upside, increasing the reputation, making expansion a risky option. The local Vin de Pays (Conch State University at Westeria, the Fighting Sand Fleas) that used to get all the local consumers, now sees only a more stratified segment.”

The twins are on campus this week experiencing some sort of something days, but at different schools. Neither the recommended red of this blog.

this is semantic, but it seems important. The faculty of middlebury will like the benefits they’d have protected, certainly, but the teaching itself (were they to go david’s route), not so much.

The more homogeneous–not to mention the lowered general quality–a class, the less fun and interesting to teach. Now, at the extremes it can be a problem, but within the small band of “elite college students”, heterogeneous classes are generally the more fun to teach.

The twins’ father is astute. College brands are like wine brands. Even worse, colleges often want to run away from their brands and students want to ignore them.

I’m always stunned by questions like, “I’m an Asian American student who wants to go to really diverse school, doesn’t like the fraternity scene, and hates drinking. Is Washinton and Lee a good school for me?”

There are KKK meetings that aren’t nearly as as “white” as W&L, which has the highest fraternity membership in the United States, whose brand according to the Fiske Guide is, “the last bastion of the southern gentleman who can hold his liquor and is damned proud of it.” When the college fell from the coveted #1 spot in Princeton Review’s “booze flows like water” ranking, the students organized an effort to reclaim their lost “prestige”.

More amazing, W&L students assure said Asian American, “Oh, yeah…there’s lots for you do to do even if you are a “GDI” (“god damn independent”) and said applicant says, “Oh, good….” Hello.

I personally believe that having a brand identity is the single most important marekting attribute for a liberal arts college to catch the shopper’s eye in the wine aisle of the supermarket.

Ya’ll don’t want to know what I thought of Williams before I applied there. My wife and I – both products of the outreach effort to recruit students from areas whence the college traditionally draws few students – were both miserably un- and under-informed. Thank goodness it still worked out.

Incidentally this is of course not limited to undergraduate college. Talk to students trying to choose between banking or consulting firms or law schools and you quickly realize that they receive almost no accurate information about the very real differences between these places.

Pardon the length, but Middlebury may be the most misunderstood institution I have seen mentioned on EphBlog. Also: hwc’s commentary cries for people to do some research before sounding off or only reading partial financial statements or repeating rumors.

Full disclosure: I attended the Bread Loaf School of English (M.A. recipient) and spent one summer at School of Chinese (with several Ephs). And my wife worked for 4 ½ years in Middlebury’s development office.

Do hwc and other EphBlog readers know the difference between the Bread Loaf Writers’ Conference, the first and still most prestigious writers’ conference (started in 1922 with the help of Robert Frost, who attended for 30+ years), and the Bread Loaf School of English (BLSE, started in 1922) — the largest graduate English Lit program in the country? I think not. Neither “caters to the wealthy,” which is an absurd statement.

In fact, Bread Loaf School of English graduates populate the country’s wealthiest and poorest secondary school faculties and do remarkable work in rural southern school districts and inner city poor school districts. 45% of students receive scholarships to the School of English, and it is graced with a remarkable faculty, including Paul Muldoon (hear of him?), Victor Luftig, John Elder, Marjorie Saban, and others
.
The Chinese School, which enrolls about 150 students/summer, receives more than 400 applications/year and has an 81% yield on offers of admissions. The same kind of selectivity goes for many of the 10 schools, most notably the School of Arabic, which receives more than 700 applications for 120 slots. All told, 1400 students study each summer in the 10 intensive Schools, about 400 of them are graduate students pursuing masters and doctoral degrees.

In terms of the demand and cost: students receive academic credit for 3 courses, and sometimes 4, which is 3/4 or a full semester of credit, and most students usually advance a full year of study. A semester of academic credit and a year advance in a language for $7K? Doesn’t seem so expensive.

More germane to this post, the Language Schools pay their way and more. They add, after taking care of overhead and infrastructure charge-backs, between $3M-4M/year…or the equivalent of having an additional $60M to $80M of endowment. The first School was founded in 1915. How good must it be to have summer programs adding revenue and adding to one’s academic reputation (Middlebury is the gold standard for language instruction and that is hardly debatable, even for some EphBloggers), rather than sports camps and conferences, which is the norm for many colleges.

And the 31 sites that make up Middlebury’s Schools Abroad (these began in 1945) operate on their own tubs and provide additional revenue ($1.2M to $2.5M, depending on the strength of the dollar), not to mention academic opportunities, for students. They are not subsidized by the operating budget or the endowment. These programs serve the M.A. program of the Language Schools (Midd awards between 175 and 200 M.A.s in languages/year), but also the rising juniors who do intensive study before going abroad. 40% of the 500 or so students who attend the Middlebury Schools Abroad are from other colleges and universities: they pay full freight and receive no aid from Middlebury, so you can see where the $$ come from. A semester or year at these programs costs far less than a semester at Middlebury or Williams, so there is a financial incentive for students to study abroad. That will not go away. Most of Middlebury’s programs are recognized, too, as the gold standard and they generate income, too. What kind of drain are they?

And hwc’s depiction of Monterey is also puzzling. Is he confusing the Monterey Institute (which was not “bought” but acquired without any payment) with the Defense Language Institute located in Monterey? Must be, since the Institute awards 300+ M.As/year in translation and interpretation, linguistics, international policy studies, and international business. 19 Fulbright Scholars from around the world chose to study at the Institute this past year, and I doubt these folks would choose to take their fellowships to “what is essentially a for-profit language instruction model cloaked in non-profit clothing.” The reported debt hwc mentions for Monterey is $22M, while its real estate assets exceed $40M.

Middlebury may be overextended due to its debt and relatively small endowment, but its programs you cite support a clear vision that is built upon a recognized strength — languages and international education – and they help to define and add to the College’s brand. Talk about brand: what liberal arts colleges has a stronger “brand” identity than Middlebury (for languages and international studies?). And except for Monterey, which extends that brand, these programs have been part of Middlebury for decades and contribute to the financial bottom line.

I did not attend Middlebury as an undergraduate, but who can help but respect the world-class programs it has developed (in languages), and done so in a way that does not interfere with its undergraduate mission: none of the aforementioned programs interferes with the undergraduate experience, and in fact, only add to the opportunities of the college’s undergraduates.

49% of the Breadloaf English school’s enrollment at four locations last year were private school teachers.

The language schools pay their own freight now. What about after the economy takes a bite out of a clientele that can afford a $7,000 summer program. The issue is not whether the language programs are good, the issue is what happens if they are no longer profit centers. How is enrollment going for this summer?

Better check you cost figures for the Middlebury study abroad programs. The programs in Italy are currently running over $20,000 per semester. Not the most expensive programs in the world, definitely priced to cater to the “cashmere” crowd. Again, what happens if the demand for these programs dries up with the stock market and availability of home equity loans?

Monterrey was broke. Middlebury acquired it by assuming the debt. It may or may not prove to be a wise acquisition, but there is no way to argue that it was not a dilution of Middlebury’s financials and focus in exactly the same way that Antioch diluted its efforts. Middlebury has assumed and guaranteed all of Monterrey’s debt. Since the financials are now consolidated, you certainly have to include Monterrey’s 600 students in any calculation of per student endowment at Middlebury. Actually, you have to also include an FTE of the language and study abroad enrollments as well since these programs are all supported by the same financial structure.

We’ll see how it plays out. If the language schools, study abroad programs, Breadloaf, and Monterrey all are profitable over the next four years, it will help Middlebury immensely. If they are go into the red from eroding demand at high price points, then the opposite will occur. Middlebury’s finances are built on achieving very high net student revenues, i.e. filling a very large number of seats (5000 per year plus the foreign programs) at very high prices.

Q:
What is the financial impact of the proposed integration with the Monterey Institute of International Studies (MIIS)?

A:
Thus far, the College’s affiliation with MIIS has not had any negative effect on our financial position, and over the long term our integration with MIIS should make us stronger. MIIS has made great progress on its own financial front; it has a record number of students this fall, and is now operating fully in the black. The Annual Fund at MIIS has increased tenfold since the start of our affiliation, and Monterey is also a contributing factor in our own record fundraising over the past three years. Several donors have given significantly because, they claimed, they believe in the mission we have established through our partnership with MIIS. These donors have donated $12.1 million of restricted support to Monterey, but have also pledged $18 million to the College for other purposes—financial aid, professorships, and general operations.

At the same time, there are indeed missing pieces that Kevin includes here that are important to the overall financial risks and rewards. Middlebury had successive record years of fundraising — “cash in” in 2006 and 2007 (exceeding $60 million each year). Those, I believe, led all LACs. Monterey, as Kevin’s post reminds us (from the College’s website), led to immediate support from alums who had not contributed in large amounts before but did because of the “big idea” that fit the college’s brand and international initiatives.

I believe the total $$ now contributed for the Monterey initiative is well beyond the $12.1M noted above. Last year, Monterey actually added to Middlebury’s net assets in a year when Middlebury’s endowment performance was flat (-0.1%) and itself registered a loss in net assets. Since Middlebury has been involved with the Institute, Monterey has had record apps, record enrollments, and record fundraising. It is very much healthier, and Middlebury has not transferred funds from operations, only restricted gifts earmarked from Monterey. And Middlebury received service agreement payments for work done for Monterey.

As for the Italian program that costs $20k/semester: so long as there are students enrolled in the Ivies and NESCAC schools, there will be a demand for Midd programs abroad. The price is still less than what they pay at their “cashmere” institutions, and the Schools Abroad would be profitable so long as the Ivies and NESCAC schools fill their beds — a likely scenario. Those are the ones paying full freight to Middlebury.

But you are correct: if these “entities” do not generate additional income, it will create further pressure on the College in the near term. But the gamble was not the programs you mentioned (save Monterey): those have been part of the institution for many decades and helped to give Middlebury the reputation it has, especially in languages and international studies. The decision in the 1990s, through 2002, to borrow to the tune it did (like Williams did in this past decade, but rates were lower then and building costs were lower), has created the stress. Then again, the infrastructure Middlebury has to show is second to none in its peer group (they got in the library, the science center, the humanities center, the athletic facilities, residence halls, etc.).

This gamble was risky, for sure, but the college is positioned well not to have to worry about its facilities for some time. In addition, the programs we have been discussing are remarkably timely for the 21st century — especially when you combine the strong international programs with the leading environmental program for undergraduates (and here I include, too, operations, such as the new biomass plant that replaced 1 million gallons of oil with local wood).

Didn’t Tom Friedman just this past week at Williams emphasize the need for language and cultural competency given the flat and post-flat world? I can’t tell if you are suggesting that language learning will be passé soon or not; but if you are, we disagree.

Midd used to have their strategic plan available on the web. The plan circa approx. 2002 or so was to build on their strengths (language, environment, location, etc.) and position themselves more advantageously against their overlap schools (williams, amherst, dartmouth, etc). They were quite explicit about that set of goals and their current and desired standing relative to peers.

They seem to have executed that strategy successfully – albeit with greater leverage and less of an endowment cushion than peers but with top flight facilities and major growth in applicants (not sure how yield has performed, though).

I recognize that the strength of one’s balance sheet determines current and future operating flexibility. And Midd’s may not be as sound as some peers. But let me be the contrarian here. Sometimes it can be the right decision to add leverage to make prudent strategic investments. I don’t know whether Midd has spent wisely (doubtless I would not recognize the campus anymore)- only time will tell.

However, other than a higher than prudent avail rate, and HWC’s not yet corroborated (IMO) assertion that language and overseas revenue streams are more vulnerable than domestic tuition, is there anything to suggest that Midd is in trouble?

Or is it more likely that a period of transformational investment has passed and Midd now hopes to harvest the fruits of those investments? In other words, did Midd successfully access long term capital (key assumption here about bond structure) at cheaper rates than its peers will be able to access in the coming years.

Wasn’t there some recent press about Ford’s good fortune at having levered up just before the capital markets went on sabatical. If Midd’s revenue does not dry up and blow away, might the more “leveraged” institution leap frog ahead as peers struggle to raise debt or donation in a much more difficult environment?

There is a higher risk profile to what Midd is doing. But is was also risky to go coed and risky to abolish fraternities.

There is so much misconception about “going coed”. The schools all went coed because they faced a rapidly shrinking applicant pool at the end of the baby boom. They all knew it; they had been looking at the demographics for years.

…assertion that language and overseas revenue streams are more vulnerable than domestic tuition

I didn’t assert that. I don’t think we know, yet, how vulnerable the domestic tuition streams are at colleges like Middlebury, let alone how vulnerable the language and study abroad revenue streams may be. Personally, I am very worried that some of the best study abroad programs may get clobbered by this recession.

I don’t think Middlebury is “in trouble” in the sense of going out of business. I just think they are stretched very thin with no cushion. They have nearly 6000 students and an endowment minus debt of $365,000. Of that, that have to maintain cash availability to cover $240,000 in outstanding cash call commitments and bond issuer requirements to place $4 million a year in reserve accounts to cover principle, on top of the bond interest payments.